A young girl dreams she is Rosaleen, who, wearing a red cape, carries her basket through the woods to Granny's house. Along the way, she meets and flirts with a werewolf in the guise of a man, and promises him a kiss if he reaches Granny's house before her.

Essentially a coming-of-age story, The Company of Wolves is based on two short stories from Angela Carter's 1979 collection The Bloody Chamber. The film is a dark retelling of the classic fairytale Little Red Riding Hood, making explicit its sexual and Freudian subtext. The original story (a morality fable, like all fairytales) warns children not to trust strangers or stray from the path. However, Rosaleen (the film's disobedient Red Riding Hood) doesn't simply fear being devoured by a wolf: she fears being sexually devoured. It is this push-pull fear and fascination with sexuality that is the heart of the film; a theme emphasised by a recurrent Eden (apple and snake) motif symbolising sexual temptation, seduction and loss of innocence.

Despite her blossoming sexual awareness, Rosaleen fears marriage and adult responsibilities. Granny's disturbing cautionary tales about predatory men who are "hairy on the inside" (sourced from Carter's short stories and forming the body of the film) do nothing to dispel these fears. Yet, despite Granny's warnings, Rosaleen deliberately kisses a handsome man-wolf, choosing to become a wolf rather than his victim. She escapes the dreary conventional life that would have faced her, and instead finds personal and sexual freedom.

Like Ginger Snaps (Canada, d. John Fawcett, 2000), The Company of Wolves uses the changing body of the werewolf as a metaphor for the horrors of puberty, menstruation, and sexual maturity. The recurring motif of the full moon draws obvious parallels between the menstrual (often thought lunar) cycle and the 'call of the wild' of the full moon for werewolves, which was later also the subject of Alan Moore's Swamp Thing comic 'The Curse'. Red dominates the palette of The Company of Wolves, representing preening (lipstick), temptation (red apples), and menstruation and death (blood).

Director Neil Jordan evokes an eerie, dreamlike atmosphere for the film's heightened reality. Its otherworldly scenery and costumes seem to have been inspired by fairytale illustrations, mixed with the studio-bound visual style of Hammer horror. The Hammer-like theatrical forest creates a sense of brooding claustrophobia where no sunlight can reach, accentuating Rosaleen's trapped existence. An intensely visual film, teeming with rich symbolism and imagery, the BAFTA-winning settings and special effects dominate the film, often at the expense of the (perhaps deliberately) underdeveloped characters (who are based on fairytale archetypes). Jordan later visited similarly gothic territory in Interview with the Vampire (US, 1994).